How SEPA vs SWIFT International Money Transfers Work Behind The Scenes

Have you ever wondered why does it take 3 to 5 days for an international wire transfer to arrive?

Nowadays, almost all bank transactions are done digitally, yet it takes more time to receive your money with a bank transfer than to send it over an express delivery courier.

Let’s start from the basics.

International wire transfers’ anatomy

When one financial institution initiates a money transfer to another, they need to either hold commercial accounts with one another, or to both hold an account in a third party intermediary institution. In the financial world, this is referred to as an interbank transaction.

Let’s illustrate this seemingly complicated statement with an example.

David holds an account in bank A and wants to send 30 Euro to Jina who holds an account in bank B. Both banks have accounts in a third party intermediary – Bank C.

This is what needs to happen:

1. Bank A (David’s bank) will take 30 Euro from David’s personal account
2. The intermediary bank C will take 30 Euro from Bank A’s commercial account
3. The intermediary bank will give 30 Euro to the commercial account of Bank B (Jina’s bank)

Here is how one simple action –  David sends 30 Euro to Jina, turns into multiple transactions, each adding an additional time to clear and of course additional fees. Normally such an operation will require only one intermediary bank, but sometimes it is very possible to have two or more intermediaries, therefore more settling time and more fees.

Normally in domestic wire transfers, each country will have a dedicated intermediary bank ( a central bank), where all other banks will be required to have commercial accounts. 

Things get more complicated in international wire transfers because there is no established global intermediary. It gets even more complicated if the transfer needs to change currencies. In this case, one of the banks will make the currency exchange.

What is a SEPA transfer?

SEPA is a special agreement between EEA countries that aims to facilitate money transfers between members states. It stands for Single Euro Payments Area and includes all EU members, plus Iceland, Monaco, Switzerland, Liechtenstein, Norway and San Marino. It is important to note that UK will remain within the SEPA agreement even after Brexit.

Even though SEPA facilitates international wire transfers, it works in the background as a domestic interbank service, with the European central bank as a dedicated intermediary for all members.

This makes SEPA transfers a lot faster and cheaper than the regular SWIFT transfers. The only limitation is that transfers need to be executed in Euro only to be considered SEPA eligible. 

It is good to know that you don’t need to have a bank account with IBAN in Euro to send or receive SEPA transfers. If your bank is working with SEPA you can have your account in British pounds or Swiss francs etc, and still be able to send and receive SEPA transfers. The only thing is that you may loose a bit on the exchange rate.

What is a SWIFT international money transfer?

Most of the international wire transfers are SWIFT transfers and they work in the exact same manner described above. SWIFT  stands for: The Society of Worldwide Interbank Financial Telecommunication. It is a global financial messaging system that connects tens of thousands of banks around the world. It is important to stress that SWIFT does not do the actual money transfers, it simply sends standardized notifications to banks about requested transactions.

Going back to the initial example, SWIFT job will be to inform Bank B (Jina’s bank) that Bank A (David’s bank wants to send a transfer. Since bank A and B do not have account with one another, SWIFT will also have to find and inform the intermediary Bank C. 

All the intermediary and exchange rate fees, accrued during the process, will form the total cost of the SWIFT transfer.

What’s the iCard role

You can send both SEPA and SWIFT with your iCard digital wallet and a free Standard account. We do have competitive rates for SWIFT transfers and a low fixed cost for SEPA. All you need to do wire transfers with us is to have your iCard IBAN ready. You will get one automatically after you pass the iCard online identity verification process.

What really makes us stand apart is the option we give you to send and receive money beyond the traditional SWIFT and SEPA options.

The iCard digital wallet gives you a chance to send instant and FREE money transfers to anyone who lives within the EEA. All you need to do is enter their email or phone number, specify the amount and click send. All the other person needs to do is to install the iCard digital wallet if they still don’t have it and simply accept the money!

Haven’t installed iCard yet? Get it today!